The Explainer: Scam-a-rama

That was Rosalind Russel in her most famous role as Auntie Mame. Her famous line, “life’s a banquet but most poor suckers are starving to death,” reminds us of an even older comment on the human condition. As far as suckers are concerned, there’s one born every minute.

In the news, the latest story of get-quick-rich schemes and those suckered by their get wealthy in a hurry dreams, involves a firm called FrancSwiss. Once again, Ponzi and Pyramid schemes are in the news.

It involves a company called FrancSwiss, and a whole bunch of angry investors. FrancSwiss allegedly recruited investors with a promise. For every 1,000 dollars you’d invest, FrancSwiss would pay you interest, calculated daily, mind you, of 4.5 percent. That’s 45 dollars a day.

The promise of a return on investment no bank could match, and which required neither research nor a sense of timing like the stock market needs, was too good to ignore. It also helped that FrancSwiss apparently did a lot of name-dropping. But the allegations are, that FranSwiss is a scam.

But it isn’t the first of its kind, here. In 1999, after a year-long manhunt, Josephine “Bunny” Herman, wife of President Joseph Estrada’s close friend and former press relations officer, Reli German was arrested on a charge of defrauding business associates of about one billion pesos in a pyramid scam. Almost every year, stories make it to the headlines. The stories involve fantastic amounts of money, made from equally fantastic promises to people, that they can get rich quick.

The Manila Times, in 2003, in a special report published the stories of some victims of these scams. Explainee, let’s take a look at what Beth, a housewife, had to say:

My family was earning its keep through a small catering business capitalized at only P20,000. Every day my husband and I delivered food to customers nearby. From our catering, we earned P500, enough for our children’s allowance and budget for the day. After two days of doing the business, we were able to save. Thinking of putting up a sari-sari store, we were advised by a relative to consider investing in Glasgow: the interest was so high and we could easily double our money. And since my husband agreed on the suggestion, I asked my relative to go with me to the office of Glasgow. After talking to a woman agent, I was so convinced that I immediately signed the papers.

After signing the papers, Beth went on to recount what happened next:

After five months, we got P5,000 as interest on the P50,000 investment we put in. We were so happy that we looked forward to the next interest payment. That’s when we experienced the problem: the second payment we were expecting fell through. We went back to the office, but the people there failed to give us an answer. Later on, we found out that ours was not an isolated case. We decided to file a complaint with the Securities and Exchange Commission. Because we were always at the SEC to follow up our complaint, my husband and I have stopped our catering business. Had I known that our money would be wasted, we could have chosen to just put it in the bank.

Let’s on on to Cecilia, described as someone single:

I got some P2 million when I took early retirement from the company I had worked for 14 years. A former officemate of mine encouraged me to invest P300,000 in MMG Holdings. I was impressed with my officemate’s stories that the investors could buy cars and townhouse units just from the interest payments. So I thought it must really be that big. After consulting with my family, I asked my officemate to help me process the documents. Months after I put my money in MMG, I heard the news that it was operating without a license. I tried to get back my money, but the management went into hiding and my officemate could not give me an explanation. I am now one of the many victims who frequent the SEC hoping to get their money back… Had I known, I could have just bought shares on the Philippine stock market…

These scams have infinite variations, and quickly capitalize on the latest technology.

Let me tell you about a scam. The details come from a reader of my column, who wants to remain anonymous.

The scam started with a text to the Globe phone of the reader’s spouse on April 18th, 2007. Here’s the text message which we’re putting up on your screens:

CONGRTLATIONS!!! You have, won 300th/w Toyota Hilux Lst.Feb5 2007. ur cell # as Home Partner. Call ds # 4details, ds is JESSA SORIANO, of Philippine comm,center..
Curious about the message, the reader rang Jessa Soriano (0927 5528 258). Explainee, I’d like you to do a little role playing and read the account of the reader. So the read calls Jessa Soriano and this happened:

She told me to call Andy Sy (0910 7300 380) who will verify my identity – to make sure I am really the winner. I tried phoning Mr. Sy, couldn’t get through and after several tries, gave up.

That should have been the end of it, right? But making it difficult to get through seems to have been a cunning plan. Explainee, go ahead:

The following morning Jessa rang to ask if I had been able to speak to Mr. Sy. I asked her what’s going on? Why does she give me a number that is not answered? I even said, “anong kalokohan ito”? Jessa wasn’t ruffled and only said she would “help” and will contact Mr. Sy for me. Finally I was able to talk to Mr. Sy who started by sounding surprised that I was only told about my winning in April when I had won in February. He said, “talaga itong Philippine Communications Center, oo” thus establishing his connection with a government agency by faulting it. In the same breath, he said he would “help” me by explaining the situation to his boss and ask for an “exception” in my case because obviously the grace period during which to claim my prize had already expired. But not to worry.

Concern and sympathy having been established, the bait was dangled. Let’s continue:

When I said fine, when I do get my car? He insisted on my listening to his spiel. That he is with SPARCO, a company that imports automotive spare parts into the Philippines. He “legitimized” the basis of his company’s raffle by saying that their board had decided on a raffle as a means of alleviating the tax burden on the spare parts that his company imports.

Incidentally, SPARCO’s a real company, and it’s line of business is indeed, importing spare parts for cars. Anyone enterprising enough to check the scam, up to this point, would seem to find their worries reassured. So explainee, let’s continue with the reader’s description of the scam:

He went on to say that the car that I had won was in Cebu. Did I wish to pick it up myself or have it delivered to my house? When I said delivered to me, he said that I shouldn’t worry about the freight cost or even the hotel stay of the 4 people who would deliver the car from Cebu. SPARCO will pay for everything. All I had to do was send him copies of 2 id’s. And oh yes, now that the car is mine, I would naturally want to register it in my name. Before I can register the car, I of course would need to get some car insurance. When I asked how much, he said, P25,000. When I told him I wouldn’t pay that amount for insurance he straight away said that he would ask his secretary to apply for a basic insurance. Cost P7,200, including registration. I should send the money via Western Union to his secretary (sorry, didn’t list down her name) c/o SPARCO International, 2898 Lopez Building, Sergio Osmena Blvd, Cebu City 6000.
So you see, the bait was a car, and the point of the scam was not even delivery fees, but car registration fees! Think of 7,200 pesos multiplied endlessly: if the scammers found just 10 gullible people a week, that 72,000 pesos in scam money!

It gets even more interesting when the reader decided to spring a little trap. Explainee, care to continue?

I texted him back to say that I won’t be sending the cash via Western Union but would ask my friend in Cebu to give him the cash. Please tell me where my friend can meet him. At this point, he texted back using another number – 0971 5495 700 – saying that he’s asked his vice president who said I have forfeited my prize because I wouldn’t follow company policy.

Sensing the reader was on to them, this is how it ended. Explainee, go on:

At the end he sent me a txt saying, “Unfortunately… I decided to 4feiture of ur prizes! Due to negligence of your part. Publication will din follow. Better luck nxtym.”

The reader then offered up this reflection:

Truth to tell there were moments during the episode (over two days) that I was almost convinced that I had really won. The scam was well thought out even including the fact that “Mr. Sy” was not available the first few times I tried to reach him. To keep me in suspense and anxious that I might lose my prize. The masterminds also chose the right people to run the scam. Jessa sounded helpful and Mr. Sy authoritative.

You have to admit, too many of us have ended up like Homer Simpson in this scene from episode 18 of Season 16:

And when I say us, I mean not just Filipinos, but all of us humans. Explainee, have you ever gotten one of those emails that claim to be from some Nigerian? A wife, daughter, or niece of some corrupt official asks your help to recover their loot? If you help, you’ll get a cut of their frozen fortune.

The San Francisco Chronicle, for example, carried a report from the Hearst Newspapers.

The “Nigerian” and similar scans defrauded people out of 198 million dollars last year alone. In the UK, people end up swindled out of something in the neighborhood of over 100 million pounds sterling a year. The numbers could be higher, but some people are to embarrassed to report how they lost their money.

The online authority to find out what’s a hoax and what’s a scam is Snopes. Com and their article-

Reveals that this scam has been around since –get this- the 1920s. It just keeps getting updated in terms of the storyline, and the means to entice people. In the 1920s it involved smuggling wealthy people out of Spain, and was done by means of letters. Today, it involves emails, and stories of crooks in Nigeria. Or, as one version circulating has it, Imelda Marcos.

When we return, how our Friendster mentality leads to an unfortunate Fraudster reality.

II. Scam-a-lot

That was Leonardo di Caprio as the forger Frank Abegnale in “Catch me if you can.”

But as historybuff.com tells us, he didn’t say it. One of his rivals did, in a case of competing fraudulent carnival attractions. But even if Barnum’s rival said it, Barnum got the credit –that’s how legendary a salesman and showman he was.

Barnum would go to any length to create sensational exhibits people would gladly pay to see. He displayed the Feejee Mermaid, for example, made from the mummified remains of a monkey and a dolphin, which you can read about in this book…

“The greatest show on earth,” Barnum said of his attractions; he gave us the word Jumbo, which was the name of his giant elephant who was killed by a train. You can even find Jumbo at find a grave dot com where to this day, people leave virtual flowers and notes to Jumbo:

Now the point of all this is, its showmanship, salesmanship, a shrewd grasp of psychology, that enables people to create elaborate schemes to get people to part with their common sense as well as their cash.

Most recently, the BSP has issued a warning concerning a company called SMFund.com, which capitalized on its having a name similar to Henry Sy’s SM group of companies. In fact SM Investments Corp. had to denounce SMFund.com.

Now we know they’re named after Charles Ponzi… He sold coupons that could be redeemed at a 50 percent profit in 90 days. As long as Ponzi could sell coupons to new investors to pay the previous group, the profits continued. At one point, 40,000 Americans were involved in his scheme, which gained him an estimated 15 million dollars in 1920.

And now, Salve, let’s tackle Pyramid schemes.

Ponzi scheme

When we return, we’re going to ask Salve how she tracked down these stories, and how you can keep your eye out for similar scams. And what you can do, in case you fall for one.

III. Interview

Salve, let me ask you to review something you called the “four stinks” in your June 27 blog entry, which we see on our screens:

Stink number one: ?No physical location, no known regulator, no investment management credentials.

Stink number two:?Companies make money by either selling services or goods.

Stink number three:?The promise of unrealistic returns is the thing that stinks to high heavens.

Stink number four:?Filipinos are generally risk-averse.

IV. My view

In 2003, the Associated Press reported that losses from pyramid schemes possibly exceeded our annual defense budget. That year marked a major problem, coincidentally, in the armed forces and police, with soldiers and cops demoralized because they lost their savings in pyramid scams.

The latest rash of stories reminds us neither education, nor prominence, neither fame nor obscurity, makes people immune to being victimized by such scams. All the headlines today, are simply the latest manifestation in a long standing problem.

Let’s give credit to the institutions that seem to be doing something about it. The Bangko Sentral, the Securities and Exchange Commission. And to individuals doing their little bit, to help fight fraud. Such as the reader who shared her story, and our guest who is trying to educate the public.

And let’s all admit, something that’s not very cheerful, but all too true: there is no such thing as a quick buck.